Prime Minister Keir Starmer will chair an emergency meeting on Monday to assess the economic fallout from the escalating Iran crisis, as investors push UK borrowing costs sharply higher and economists warn of a renewed surge in inflation. The government said finance minister Rachel Reeves and Bank of England governor Andrew Bailey will attend the COBRA-style session, joined by Foreign Secretary Yvette Cooper and Energy Secretary Ed Miliband, underlining the questions now being framed as both economic and national security priorities.
The meeting comes after Iran threatened to strike energy and water infrastructure in Gulf states in response to comments by U.S. President Donald Trump about hitting Iran’s electricity grid, stoking fresh anxiety over global energy supplies. Britain’s finance ministry said the briefing will cover “the economic impact of the crisis on families and businesses, energy security and the resilience of industry and supply chains alongside the international response,” signalling a focus on immediate household support and wider market stability.
Markets have already reacted. On Friday, yields on 10-year British government bonds jumped above 5% — a level not seen since the global financial crisis — as investors moved to price in Britain’s fiscal vulnerability to sustained energy price shocks. The sell-off has extended beyond short-dated gilts that track interest-rate expectations, prompting concern that longer-dated debt is being repriced on fears of bigger government borrowing or more protracted inflation. “Developments over the weekend mean we are entering a new and very dangerous phase for financial markets,” said Neil Wilson, UK investor strategist at Saxo Markets.
Economists warn that the energy-price shock could push UK inflation back up toward 5% later this year if oil and gas prices remain elevated. That prospect threatens to undermine the slow-growth recovery and complicate Reeves’s plans to repair the public finances. The government’s heavy reliance on imported natural gas, already coupled with persistently high inflation, has made the economy particularly sensitive to disruptions in global energy markets.
The government has begun targeted measures: last week it unveiled a £53 million aid package for households that rely on heating oil. Reeves has resisted calls for broader, blanket cost-of-living measures, saying it is too soon to decide on sweeping support and that more targeted help is under consideration. But analysts warn that if energy prices stay high and wider subsidies are required, the fiscal cost could force difficult choices later in the year — including higher taxes — to reassure bond investors.
The Bank of England has signalled readiness to act to bring inflation back toward its 2% target, and market bets have shifted sharply toward the prospect of rate rises rather than the cuts that were expected before the crisis. Some policymakers have said higher borrowing costs might be necessary; Governor Bailey has cautioned it is too soon to say whether rates will have to rise. Monday’s meeting will be watched closely by markets for signs of whether the government will widen support measures, how it plans to shore up energy security, and how ministers and the BoE intend to coordinate a response that calms borrowing markets while protecting households and businesses.
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